The Gold to Silver Ratio has been falling this Summer in the face of global tumult.

The Gold to Silver Ratio has not shown a rush to the highest quality during the quietest months of the market.  However, the events of the world have been rather good reasons for people to jump into alternative currencies including the traditional crisis backstops of precious metals.

  • Floods in the oil refinery center of the world – Houston
  • Hurricane Irma is a Category 3 Hurricane that could become a Category 4 rather soon
  • Possible military conflicts involving Japan, South Korea, North Korea, China, Russia and the United States
  • Racial unrest and political instability in the United States
  • Terrorist attacks in Europe
  • The threat of a possible Italeave with Beppe Grillo’s Five Star Movement growing in popularity
  • A German Chancellor election that could shake up dynamics in the European Union

In the face of this, Bitcoin has risen significantly and has experienced greater adoption.  Bitcoin has become the de facto currency of the Venezuelan people in the face of a Socialist dictatorship under Nicolas Maduro.  Gold and Silver have also risen, but the more speculative and lesser quality alternative currencies and alternatives to currency have outshined Gold.

BTCUSD Prices

The Gold to Silver Ratio reflects the strength of the lesser valued precious metals and one Bitcoin is worth more than three troy ounces of Gold.

Gold to Silver Ratio

XAUUSD Rate:  Gold Price

The equities market in the United States is rather placid as the Volatility Index (VIX) for the S&P 500 is still rather low.  Any spike move above 12 and any daily candle that is bullish on the VIX and somewhat long brings out the narrative that the equities market is overheated and will crash imminently.  When the VIX falls below 12 and the equities market continues its rally, there is a media narrative that asks what is wrong with traders and investors to continue such optimism.

S&P 500 Volatility Index (VIX) Chart

Much is made of the human element of the market activity, but the algorithms truly rule the market and have zero concern for what time of year it is.  When the quantitative algorithms sense that the market environment is ready for a change in direction, volatility or movement, the market will move in-kind.

Gold to VIX ratio

Getting the XAUUSD/VIX ratio to open above 140 is a matter of Gold making greater gains (this has never happened), which is a sign of instability, while the large caps of the United States stock market continuing to rise and fear does not encroach Wall Street.  It is strange that commodity and currency traders could see things one way while equities traders have a very different outlook.

The U.S. Government has played an active role in ensuring that one commodity does not rise in the face of an already destructive Hurricane Season.  The U.S. Secretary of Energy, Rick Perry, tapped into the United States’ Strategic Oil Reserves to offset supply losses, reduce fuel prices and limit the economic impact of Hurricane Harvey’s devastating effects on the City of Houston and the rest of the Western Gulf Coast of the United States.

With Labor Day Weekend in the United States, the start of the more historically volatile trading portion of the year begins.  Will the Gold to Silver ratio continue its Summertime decline or will demand for Gold outstrip Silver in comparably greater volatility markets?

If there is a drop-off in the S&P 500 to Gold ratio, the precipitous fall that took place in 2007-2008 and the continued downward shift into 2011 may not be replicated exactly as it would take previously unseen lows in this ratio to garner attention.  The ratio is generally flat, but the beginning of the Financial Crisis saw a rounded top in this ratio.

S&P 500 to Gold Ratio

It is important to be strategically aware of these ratios so that shorter term trades are made in accordance with the trend or countertrend properly.